Bangladesh Bank plans mergers in non-bank financial institutions | BB now considering merger of non-bank financial institutions

Bangladesh Bank plans to initiate mergers and acquisitions among weak non-bank financial institutions (NBFIs) if a similar initiative in the banking sector proves successful.

The central bank recently introduced a rapid recovery programme for the banking sector, under which weaker banks will be merged with or taken over by their stronger counterparts.

In this regard, the Department of Financial Institutions and Markets of Bangladesh Bank has approached some of the weaker non-bank financial institutions to engage in discussions among themselves on potential mergers and acquisitions.

However, if need be, the banking regulator will step in and initiate mergers or acquisitions among non-bank financial institutions to ensure their survival, Bangladesh Bank officials said on condition of anonymity.

They also said a number of non-banking financial institutions had approached the central bank seeking advice on how to initiate potential mergers following the approval of the Union Capital-Prime Bank merger.

Industry officials say merging some non-banking financial institutions would help cut operating costs and curb the massive number of loan irregularities that have led to a liquidity crisis in the sector.

Md Golam Sarwar Bhuiyan, chairman of Bangladesh Leasing and Finance Companies Association, said it would be a great advantage for weak non-bank financial institutions to merge with healthy ones.

“Therefore, there is a need for comprehensive guidelines on mergers of non-bank financial institutions,” added Bhuiyan, who is also managing director of Industrial and Infrastructure Development Finance Company Ltd.

There are 35 non-banking financial institutions operating in the country. Their combined bad loans stood at Taka 21,658 crore as of September last year, a record 30 per cent of their total disbursements.

Meanwhile, more than 80 percent of loans issued by seven non-bank financial institutions had defaulted by this month.

The seven non-banking financial institutions (NBFIs) are: BIFC, Fareast Finance, FAS Finance, First Finance, GSP Finance, International Leasing and Peoples Leasing.

Toufic Ahmad Choudhury, former director general of the Bangladesh Institute of Bank Management, recently told The Daily Star that there are too many financial institutions compared to the size of the economy.

Currently, there are over 100 financial institutions, including banks, operating in Bangladesh.

“We don’t need so many financial institutions,” he added.